Why does Geojit have a ‘sell’ call on this mid-cap cement stock?

Brokerage house Geojit Financial Services has issued a 'sell' call on JK Cement with a target price of ₹4,100, implying a downside potential of 9 per cent from its previous close of ₹4,516.55.

JK Cement Ltd., a leading player in India's cement industry, continues to expand its domestic and international footprint. With a grey cement production capacity of 24.34 million tonnes per annum (MTPA) and a white cement capacity of 3.05 MTPA, the company operates across 19 states in India and exports to 32 countries. 

While long-term growth prospects remain intact, Geojit highlights that near-term headwinds such as pricing pressures and rising costs could impact performance.

Against this backdrop, Geojit suggested selling the stock between ₹4,500 to ₹4,600 per share for a target price of ₹4,100 and maintaining a stop loss at ₹4,920.

Stock Price Trend

The cement stock has jumped 7.5 per cent in the last one year. Moreover, it has declined over 4.5 per cent in February so far after an over 5 per cent rise in January 2025.

From its previous close of ₹4516.55, the stock is over 9 per cent away from its peak of ₹4,985, hit earlier this month. Meanwhile, it has advanced over 24 per cent from its 52-week low of ₹3,639.15, recorded in June 2024.

Fundamental Analysis

Geojit noted that JK Cement's financial performance in the December quarter (Q3FY25) remained muted. The company’s revenue stood at ₹2,930 crore, largely unchanged from the previous year. However, EBITDA declined by 21.3 per cent year-on-year (YoY) to ₹492 crore, with EBITDA margins contracting from 21.3 per cent in Q3FY24 to 16.8 per cent. The consolidated net profit also took a hit, falling 33.2 per cent YoY to ₹190 crore, primarily due to increased employee and freight costs.

Despite these challenges, Geojit highlighted the company's recent strategic acquisition, where the board approved a 60 per cent stake purchase in Saifco Cements Private Ltd. for ₹174 crore. This move is expected to strengthen JK Cement’s regional presence.

Looking ahead, Geojit cited Bloomberg consensus estimates, projecting revenue, EBITDA, and PAT growth at a compounded annual growth rate (CAGR) of 6.5 per cent, 10 per cent, and 14.2 per cent, respectively, over FY24-26E. The firm expects demand to pick up, supported by government-led infrastructure and housing projects, which could also help boost realisations.

However, Geojit pointed out that JK Cement faces near-term concerns, including pricing competition and rising debt due to ongoing capital expenditures. From a valuation perspective, the stock is currently trading at a one-year forward EV/EBITDA of 16.3x, which is above its five-year average of 13.7x.

Technical Analysis

Geojit observed that JK Cement’s stock has breached a key support level, specifically the rising trendline connecting the lows of November 2024 and January 2024. Additionally, the stock has slipped below its 21-day moving average (DMA) and 50-day moving average (50-DMA), indicating a potential weakening trend.

A bearish candlestick pattern was observed on the weekly chart, accompanied by price momentum divergence, which Geojit believes could be an early sign of a trend reversal. Furthermore, the Relative Strength Index (RSI) has been declining, currently positioned at 42, signalling growing selling pressure.

Additionally, Geojit pointed out that a negative crossover on the Moving Average Convergence Divergence (MACD) indicator on the daily chart further reinforces the bearish sentiment.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.